Real estate agents are one of the sectors where financial criminals primarily target money laundering. Indeed, buying and selling real estate is a common method of money laundering. There is a risk of money laundering by the millions by buying and selling a property. This is the money laundering method used in real estate agencies to provide criminals with a fairly legitimate source of funding, using complex business structures with multiple countries and bank accounts to hide the true purpose of the transaction. In addition, criminals pay a significant amount to a real estate brokerage company and then take it back. Tax evasion by real estate agents is another crime that can lead to money laundering. Overall, FinCEN is very concerned about the money laundering risks associated with the commercial real estate sector. In its 2006 and 2011 reports, finCEN detailed various types of suspicious transactions indicating money laundering in the commercial real estate sector. In the 2006 report, FinCEN analyzed a sample of SARs that included transactions related to commercial real estate in which SAR stories described transactions or activities involving suspicions of money laundering and related illegal activities. Among the types of illegal activities identified in this analysis were: structuring, money laundering, international transfers, tax evasion and other illegal activities. Among the key findings of the report, finCEN said that property management, real estate investment, real estate and real estate development companies were the most frequently reported companies associated with commercial money laundering related to commercial real estate.
The most suspicious activity highlighted in the report was money laundering to promote tax evasion. The report also noted that there appears to be a growing trend to use commercial real estate accounts to launder money for PEPs. [64] In the 2011 report, which focused on commercial real estate financing fraud, FinCEN found that SAR deposits involving such fraud almost tripled between 2007 and 2010. FinCEN`s analysis revealed that the four main categories of fraud reported were: false documents, embezzlement, secret bank insiders and false statements. [65] Money laundering is an act in which criminal assets are proven to be income from a legitimate source. Money laundering can occur in many sectors and in many ways. Real estate agents are an industry where there is a high risk of money laundering. Because of this risk, real estate agents should prevent money from financing terrorist activities by carrying out money laundering checks. In general, real estate agents are regulated by HMRC, but they must also follow the regulations of their country or subsidiaries. Real estate agents may face fines or criminal prosecution if they do not comply with the regulations. This can result in unlimited fines with a prison sentence of up to 2 years.
FinCEN recognizes the efforts of professional organizations for real estate professionals such as the NAR (real estate agents and brokers) and the American Bar Association (settlement lawyers) to establish voluntary AML/CFT policies that their members may consider implementing to protect themselves from illegal actors seeking to launder illegal funds. [19] FinCEN sees the publication of such guidelines as a positive step and a sign of the commitment of the vast majority of real estate professionals to protecting the U.S. real estate sector from illegal activities. However, these guidelines are not binding or subject to monitoring or enforcement and can therefore be avoided by illegal actors. There is also little information on the extent to which the industry has implemented these best practices and voluntary policies, or on other measures taken to combat money laundering in the real estate sector. In this context, FinCEN believes that despite the industry`s efforts, regulatory measures are needed. However, FinCEN welcomes comments on how the industry has implemented these voluntary guidelines, the challenges in their implementation, their effectiveness and whether FinCEN should consider including elements of the existing voluntary guidelines in a possible rule. 61. What general factors should FinCEN consider in determining the scope of such a rule? In other words, which companies involved in residential or commercial real estate transactions should be required to comply with possible rules and which companies should be excluded? What types of transactions, if any, should be excluded? Contributions and actions of law enforcement authorities also indicate that residential real estate poses a significant risk of money laundering. Federal and state law enforcement agencies have informed FinCEN that SAR and GTO reports related to real estate transactions have provided better insight into the assets of individuals of investigative interest, led to asset forfeiture measures, and helped generate clues and identify new investigative objects. In addition, a review of complaints, charges and cases pursued beyond the investigations described above provides many examples of the links between real estate transactions and money laundering, as well as other illegal activities.
[60] Therefore, the usefulness of GTO`s disclosure of real estate data to law enforcement authorities suggests that a regulatory requirement to ensure nationally consistent reporting would facilitate the efforts of law enforcement and national security authorities to combat illegal activities in this sector. [61] 39. What are the potential benefits and costs of announcing a transaction reporting obligation that covers real estate agents and agents, securities agencies and/or insurance companies or lawyers? What burden (quantify if possible) would it impose on these companies? Real estate agents must meet the requirements of the MLR 2017. Otherwise, the real estate agent could be prosecuted for a crime. The government proposes to introduce the Anti-Money Laundering Monitoring Office (OPBAS) in 2018. This is a body that will be created to coordinate the implementation of the MLR 2017. While there have been only a handful of prosecutions of individuals for violating money laundering regulations over the years, the creation of the OPBAS and the additional burden that the 2017 MLR imposes on regulators (for example, see Regulation 17) provide a clear indication that authorities will prosecute those who violate the 2017 MLR. According to figures released by NAR, in 2020 and 2021, about 19% of sales of existing residential properties were unfunded transactions.
[45] The Census Bureau also estimated that about 4.4% of new home sales are unfunded transactions. [46] Given that the sale of existing homes accounts for approximately 90% of the U.S. residential real estate market, FinCEN estimates that the cash purchase rate of U.S. real estate transactions is approximately 18.5%.